China Is Pushing to Reboot Economy Despite Global Trade Tensions

2024-06-22

The 2024 National People’s Congress (NPC) in China convenes this week against the backdrop of a slowing economy thanks to an aging workforce, strained U.S. relations, and a housing sector crisis. Amid these issues, the NPC aims to increase economic confidence and set growth targets while facing public and investor unease over the country’s economic direction and a deepening employment crisis.

The 2024 NPC

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This week, economists’ eyes are turning to China for China’s National People’s Congress (NPC), an annual ceremonial legislature gathering in Beijing.

Top Leaders Attending

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At the NPC, more than 5,000 Chinese leaders convene to endorse decisions made by the Communist Party’s top leadership, publicize government plans, and set the nation’s economic growth targets and policy priorities for the upcoming year.

Boosting Confidence

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Currently, China’s ceremonial national legislature struggles to boost confidence in an economy that is slowing amid many economic problems.

These problems include an aging workforce, tension-tainted foreign diplomatic relations, especially with the United States, and a crisis in the housing sector.

A Lack of Recovery

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This has dimmed the expected recovery of their economy with consumer spending after China lifted the heavy anti-virus measures in late 2022. 

Unmet Expectations

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It has been followed by unmet expectations of local governments where they must grapple with massive debts and work around the foreign direct investment that plummeted by some 80% last year.

Conflicting Emotions

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As more than 5,000 Chinese leaders gathered in Beijing for this important political event, a vivid contrast has begun to take shape between the dark mood in the streets and financial markets when compared to the joyous official stance as China celebrates 75 years since the People’s Republic was founded in 1949.

Steering Through Economic Troubles

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While the public and investors are troubled by where their next paycheck will come from and the economic outlook that is not painting any rosy picture, official narratives like the one from People’s Daily declare the government’s assuredness in steering through economic troubles.

Employment Crisis

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The labor market presents significant challenges, with many facing difficulties securing employment, a problem that seems to span various age groups.

Ratifying Leadership

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The National People’s Congress serves as a platform for ratifying leadership decisions and setting governmental priorities, with Xi Jinping, China’s most authoritative leader in decades, leading the way.

A New Target Growth Rate

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Premier Li Qiang is expected to announce a growth target of about 5%, but this was also last year’s objective and doesn’t meet many economists’ more pessimistic growth predictions. 

The Lowest Rate in 50 Years

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It is also worth noting that this target comes after last year’s growth rate, which was the lowest economic growth rate since the 1970s.

Stimulating the Recovery

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Discussions at the congress will focus on promoting high-quality development and the progress of Chinese modernization amidst public expectations of significant government expenditure to stimulate economic recovery.

Chinese Real Estate Issues

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The Chinese real estate sector’s decline over the last two years is a major contributor to the economic downturn. This decline results from regulatory measures against developers’ excessive borrowing. 

Numerous Defaults

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The decline has resulted in numerous defaults and heightened financial pressures, leading to efforts to rejuvenate the sector through rate cuts and relaxed regulations.

The Greater Economy

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The economy as a whole is threatened by deflationary pressures that come after pandemic-induced disruptions and fewer exports.

This marks the first decline in exports seen in seven years despite the resilience of the U.S. economy.

Businesses Watch Cautiously 

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In response to China’s struggling economy, domestic and international businesses are remaining cautious, with global firms diversifying their investments to mitigate risks associated with China-U.S. tensions. 

Tightening the Grip

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Businesses are also worried about the Chinese Communist Party’s tightening grip on domestic regulation, which has unfortunately obscured the business environment and increased its uncertainty.

Boosting Domestic Consumption

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Amid these challenges, China faces demographic is shifting and for an economic recovery they need to transition from reliance on labor-intensive industries to boosting domestic consumption through significant income redistribution, a strategy complicated by current economic imbalances.

Growing Concerns

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In the U.S. and Europe, concerns are growing over China’s potential reliance on export-driven recovery strategies, which could lead to trade imbalances and further strain diplomatic relations.

This concern highlights the need for comprehensive economic reforms, or else China’s economy may face far darker days ahead.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.